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Life Insurance

Life Insurance Policies

Life Insurance Policies

There are two major types of life insurance. Whole life, a kind of permanent insurance policy, may serve more than a single death benefit purpose. Term insurance, on the other hand, has no cash value benefit and pays a death benefit if and only if the insured makes regular premium payments.

Whole life offers financial protection for the beneficiaries of the insured and helps the insured individual to accrue cash value over time. It is a financial planning and investment vehicle for the policy holder that may be helpful in times of financial need.

Whole life vs. term life

Whole life is designed to last through the insured's entire life span. In comparison, term life coverage ends at a certain point in the insured's life. At that point, the insurer's underwriters won't accept additional premium payments and the previously insured person and his beneficiaries won't receive a death benefit when he or she passes away.

Whole life offers greater protection to the insured and his family. As long as the policy holder keeps up his premium payments, the policy remains in force. When the insured dies, his or her beneficiaries will then receive a death benefit payment.

How life policies work

The whole life policy ensures a certain level of payout at the end of life. The insured makes regular premium payments that usually remain at a level rate. In comparison, the term insurance policy holder's premium rates could rise as the insured gets older. Whole life remains in force and the death benefit is fixed as long as the insured makes his or her premium payments on time. The rates don't get raised or the insurance doesn't get cancelled if he or she gets sick.

Types and Payouts

The insured of a whole life policy may choose to keep his or her full policy active or take cash out of the policy. When the insured decides to fully "cash out", he or she keeps the money and the policy is no longer active.

He or she may elect to simply withdraw the interest accrued in the policy at a certain period. Alternatively, the insured can decide to borrow from the whole life policy. While the policy remains active, the payout to beneficiaries in the event of the insured's death is reduced until he returns the interest or borrowed money to the policy.

Benefits

Only beneficiaries of the insured receive cash from a term life policy. In contrast, the insured may fully cash out, withdraw accrued interest, or take a loan from a whole life policy while he or she is alive.